In English, the word “it” in “it must needs have been created for a thing of naught,” has no antecedent. Lehi doesn’t clearly define what “it” means. However, the context helps us understand. Because the context speaks of creation, it is possible to read this as the creation of the earth. However, it is probable that this is too limited of a definition. Lehi has not been talking about a place, but of a process. Thus, the process would have been created for nothing. That process included the creation of the Earth, but transcends it. It is the entire plan of salvation that would have been worthless if there had been “a compound in one” (see the comments for 1 Nephi 2:11 for more on what “a compound in one means”). It would have been worthless, unless there were a division between good and evil.
Ultimately, the scriptural symbol that stands for this division is the Tree of Knowledge of Good and Evil in the Garden, to which Lehi will refer later in this discourse. Prior to partaking of the Tree, Adam and Eve lived in a state of a “compound in one”, and it was only after initiating the difference, and particularly the understanding of that difference, that the ultimate plan of God would be in place.
Thus, if there was no difference between good and evil, if Adam and Eve had not eaten of the fruit of the Tree of Knowledge of Good and Evil, it would have destroyed “the wisdom of God and his eternal purposes.” It is the very fact that God had eternal purposes that the side effects of agency were tolerable. Agency not only meant that those eternal purposes could be fulfilled, but that humankind would inevitably fall short and be subject to the just punishment for the violation of the law. The mercy of God in the Atonement is as an enabling function. It allows for mercy and justice to be reconciled so that God’s eternal purposes might be accomplished.